UK-India Trade Deal | Armstrong Economics

Keir Starmer and Narendra Modi brokered a “free trade agreement” yesterday that is expected to lift the UK economy by £4.8 billion annually, with £6 billion in investments by Indian and British corporations. The deal comes after nearly four years of negotiations and is seen as a major step forward for the two nations.

This is not a true free trade deal. Tariffs on UK goods will be reduced from 15% to 3%. Both Indian and British parliaments must approve of the measure which will take months to approve. Indian exports previously faced duties up to 20%, but the UK is now offering 99% duty-free access for Indian exports. India will go further to reduce duties on some key exports like whisky which will see an immediate deduction from 150% to 75%, followed by a reduction to 40% over the next decade. Autos exports from the UK will also see a sharp decrease from 110% to 10%.

The deal will also expand market access for high-skilled laborers seeking employment in the UK. With a few sector prohibitions, Indian professionals may now work for up to two years in the UK without the need to be based in the UK. Those workers will be eligible for a three-year exemption from social security as well. Public procurement opportunities will be widely available to UK businesses seeking to invest in India.

Some estimate that UK exports to India are expected to increase by 60% to £15.7 billion by 2040 under the new deal, with UK imports from India expected to rise by 25% or £9.8 billion by 2040. The UK government believes its GDP will increase by £4.8 billion annually if parliaments pass the measure.

The UK government also believes that the framework will create thousands of jobs. Critics believe that the deal is partial to Indian professionals who require lower wages to maintain the same lifestyle as someone living in the UK. The agreement also does not open India’s financial and legal services sectors to UK corporations. The deal does not include protections for labor rights or public health. There are other sector related issues, especially regarding coal, as many believe the safeguards for workers and the environment are not present.

India opposes the UK’s carbon border tax and adherence to the climate change net zero agenda that has been suffocating energy sectors. For 2025, the official carbon price per ton of CO2 is set at £41.84 under the UK Emissions Trading Scheme. The Carbon Price Support (CPS) is an additional tax on top of the ETS that is set at  £18 per ton of CO2 for fossil fuels used to generate electricity. Beginning in 2027, the UK plans to introduce a Carbon Border Adjustment Mechanism (CBAM) tax on carbon of imported goods such as steel, iron, hydrogen, cement, fertilizers, and aluminum.

Starmer made it clear that the UK is still planning to reduce carbon emissions by 68% by 2030, with the goal of reaching net-zero by 2050. Free trade is a move in the right direction, yet, there will be noteworthy issues ahead as the two governments are not aligned on key issues. The legal and financial sector access will need to be discussed, but the climate change agenda is the stronger problem as the UK is not adhering to a plan that is unfeasible both economically and logistically.